Multiple choice question

International Economics
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1. A main advantage of specialization results from:
a. Economics of large scale production
b. The specializing country behaving as a monopoly
c. Smaller production runs resulting in lower unit costs.
d. High wages paid to foreign workers
2. International trade in goods and services tends to:
a. Increase all domestic costs and prices
b. Keep all domestic costs and prices at the same level
c. Lessen the amount of competition facing home manufacturers
d. Increase the amount of competition facing home manufacturers
3. A sudden shift from import tariffs to free trade may induce short-term
unemployment in:
a. Import-competing industries
b. Industries that are only exporters
c. Industries that sell domestically as well as export
d. Industries that neither import nor export
4. Mercantilism
a. Is the philosophy of free international trade.
b. Was a system of export promotion and barriers to imports practiced
by governments.
c. Was praised by Adam Smith in The Wealth of Nations.
d. Both (a) and (c).
5. The gains from international trade are closely related to:
a. The labor theory of value
b. How much the autarky price differs from international terms of trade
change
c. The fact that a country must lose from trade.
d. All of the above
6. In the classical model of Ricardo, the direction of trade is determined by:
a. Absolute advantage
b. Comparative advantage

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 c. Physical advantage
d. Which way the wind blows
7. Absolute advantage is determined by:
a. Actual differences in labor productivity between countries.
b. Relative differences in labor productivity between countries.
c. Both (a) and (b)
d. Neither (a) nor (b)
8. Comparative advantage is determined by:
a. Actual differences in labor productivity between countries.
b. Relative differences in labor productivity between countries.
c. Both (a) and (b)
d. Neither (a) nor (b)
9. If a country has a bowed out (concave to the origin) production
possibility frontier, then
production is said to be subject to:
a. Constant opportunity costs.
b. Decreasing opportunity costs.
c. First increasing and then decreasing opportunity costs.
d. Increasing opportunity costs.
10. If a country has a linear (downward sloping) production possibilities
frontier, then production is said to be subject to:
a. Constant opportunity costs.
b. Decreasing opportunity costs.
c. First increasing and then decreasing opportunity costs.
d. Increasing opportunity costs.
11. The terms of trade is given by the prices:
a. Paid for all goods exported by the home country.
b. Received for all goods exported by the home country.
c. Received for exports and paid for imports.
d. Of primary products as opposed to manufactured products.
12. In autarky, when a community maximizes its standard of living, its
production and consumption point is:
a. Below the production possibility frontier.
b. On the production possibility frontier.
c. Above the production possibility frontier.
d. Can’t tell without more information.
13. In autarky, when a community maximizes its standard of living, its
production point is:
a. Below the production possibility frontier.
b. On the production possibility frontier.
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 c. Above the production possibility frontier.
d. Can’t tell without more information.
14. The Heckscher-Ohlin theory explains comparative advantage as the
result of differences in countries’:
a. Economies of large-scale production.
b. Relative abundance of various resources.
c. Relative costs of labor.
d. Research and development expenditures.
15. The factor endowment model of international trade was developed by
a. Adam Smith
b. David Ricardo
c. John Stuart Mill
d. Eli Heckscher and Bertil Ohlin
16. According to the factor endowment model of Heckscher and Ohlin,
countries heavily endowed with land will:
a. Devote excessive amounts of resources to agricultural production.
b. Devote insufficient amounts of resources to agricultural production.
c. Export products that are land-intensive.
d. Import products that are land-intensive
17. According to the Heckscher-Ohlin model, the source of comparative
advantage is a country’s:
a. Technology
b. Advertising
c. Factor endowments
d. Both (a) and (c)
18. A tax of 20 cents per unit of imported cheese would be an example of a
(an):
a. Compound tariff
b. Effective tariff
c. Ad valorem tariff
d. Specific tariff
19. A tax of 15 percent per imported item would be an example of a (an):
a. Ad valorem tariff
b. Specific tariff
c. Effective tariff
d. Compound tariff
20. Which trade policy results in the government levying both a specific
tariff and an ad-valorem
tariff on imported goods:
a. Compound tariff
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 b. Nominal tariff
c. Effective tariff
d. Revenue tariff
21. The effective rate of protection
a. Distinguishes between tariffs that are effective and those that are
ineffective
b. Is the minimum level at which a tariff becomes effective in limiting
imports
c. Shows how effective a tariff is in raising revenue for the government
d. Shows the increase in value added for domestic production that a
particular tariff structure makes possible, in percentage terms
22. A tariff that prohibits imports has only
a. Revenue effect and redistribution effect
b. Revenue effect and protection effect
c. Consumption effect and protection effect
d. Redistribution effect and consumption effect
23. _____ represents the difference between what consumers have to pay for
a product and what they are willing and able to pay.
a. Producer surplus
b. Deadweight surplus
c. Government surplus
d. Consumer surplus
24. To reduce imports, suppose that the government of Norway imposes a
quota equal to 800 computers. Compared to what occurred under free
trade, Norway’s consumer surplus will ______ and its producer surplus
will ______.
a. Increase, increase
b. Increase, decrease
c. Decrease, increase
d. Decrease, decrease
25. During periods of growing domestic demand, an import quota
a. Is less restrictive on a country’s imports than a tariff
b. Is more restrictive on a country’s imports than a tariff
c. Has the same restrictive effect on a country’s imports as a tariff
d. Will always generate increased tax revenue for the government
26. A specification of a maximum amount of a foreign produced good that
will be allowed to enter the country over a given time period is referred
to as a (an):
a. Domestic subsidy
b. Export subsidy
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 c. Import quota
d. Export quota
27. Import quotas tend to result in all of the following except:
a. Domestic producers of the imported good being harmed
b. Domestic consumers of the imported good being harmed
c. Prices increasing in the importing country
d. Prices falling in the exporting country
28. If the home country government grants a subsidy on a domestically
produced good, domestic producers tend to:
a. Capture the entire subsidy in the form of higher profits
b. Increase their level of production
c. Reduce wages paid to domestic workers
d. Consider the subsidy as an increase in production cost
29. In certain industries, Japanese employers hesitate to lay off workers.
Therefore, they sometimes have excess supplies of goods that they
cannot sell on the home market without lowering prices. To hold down
losses, they sell goods in overseas markets at prices well beneath those in
Japan.
This practice is best referred to as:
a. Orderly marketing
b. Trigger pricing
c. Domestic content pricing
d. Dumping
30. The exchange rate is kept the same across geographically-separate
markets by
a. Hedging
b. Speculation
c. Government regulation
d. Arbitrage
31. The reduction or covering of foreign exchange risk is called
a. Hedging
b. Speculation
c. Intervention
d. Arbitrage
32. An important feature of a __________ is that the holder has the right,
but not the obligation, to
buy or sell currency.
a. Swap
b. Foreign exchange arbitrage

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 c. Foreign exchange option
d. Futures market contract
33. The least common type of transaction in the foreign exchange is a
a. Forward transaction
b. Spot transaction
c. Swap transaction
d. None of the above
34. If the bank is selling francs for $0.45, then what is the implied franc
price of the dollar?
a. 2.0
b. 1.999
c. 2.323
d. 2.222
35. The franc is said to be selling at a __________ if the spot dollar price is
$0.48 and the ninemonth forward rate is $0.42.
a. Forward discount
b. Forward premium
c. Forward spread
d. None of the above
36. Investors engage in ______ when they move funds into foreign
currencies in order to take advantage of interest rates abroad that are
higher than domestic interest rates.
a. Currency arbitrage
b. Interest arbitrage
c. Short positions
d. Long positions
37. Currency speculation is ______ if speculators bet against market forces
that cause exchange fluctuations, thus moderating such fluctuations.
a. Destabilizing
b. Stabilizing
c. Inflationary
d. Deflationary
38. The real effective exchange rate for the U.S. dollar
a. Reflects only the influence of merchandise or real trade on the dollar’s
exchange value
b. Reflects only transactions in the currency futures market
c. Is the weighted average of the dollar exchange rate relative to the
currencies of important U.S. trading partners, adjusted for inflation
d. None of the above

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39. Suppose that Boeing is to receive payment in euros in 6 months and
wants to engage in hedging. The firm would ______ euros on the 6-
month forward market in order to protect itself from a/an ______ of the
euro.
a. Sell; appreciation
b. Sell; depreciation
c. Buy; depreciation
d. Buy; appreciation
40. Suppose there occurs an increase in the Canadian demand for Japanese
computers. This results in a (an):
a. Increase in the demand for yen
b. Decrease in the demand for yen
c. Increase in the supply of yen
d. Decrease in the supply of yen